Working Paper: NBER ID: w29547
Authors: Simon M. Naitram; Matthew C. Weinzierl
Abstract: Robust support for corporate income taxation is a puzzle for standard tax theory because the tax’s incidence is uncertain and unreliable. We propose a resolution: if the corporate tax is seen as a benefit-based tax, its normative appeal depends on the correspondence between its incidence and that of the benefit which corporations derive from the state’s activities. We show that a simple mechanism makes this correspondence exact—and the net incidence of the tax zero—when the tax base matches what we call the benefit base. As a result, the appeal of the corporate income tax is independent of incidence as conventionally understood.
Keywords: corporate income tax; tax incidence; benefit-based taxation
JEL Codes: H21; H25; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| corporate income tax (H24) | benefits derived from state activities (H79) |
| benefit base (J32) | net incidence of the tax (H22) |
| tax design (H20) | burden of the tax (H22) |
| relative elasticities (D11) | burden of the tax (H22) |